The housing marketing is heating up with mortgage rates recently breaking through the 4 percent threshold, and very likely staying above that level next year, all while home prices are also increasing. To make the best homeownership choice in 2017 in the midst of these higher cost factors, a consumer should take action in four areas: strengthen credit, shop smart for a mortgage, choose the house carefully and wisely negotiate price.
Strengthen your credit score before you look for a mortgage. The majority of people don’t know their credit score until they begin to look for a home or mortgage.
Since looking for a home can take anywhere from one to three months on average, sometimes even longer, it could pay off to use the home shopping time to strengthen your credit score, especially if it means getting a lower mortgage rate. How much lower? Although not every lender is the same, a strong credit score can cut as much as half a percent from your rate.
A housing counselor or credit counselor can provide guidance on what to do to boost a credit score while shopping for a home.
But just as it could pay off to improve your credit before applying and getting approved for a mortgage, buyers shouldn’t assume that an approved mortgage is a done deal. Until all of the paperwork is signed and the home’s keys are handed over, a lender may review the agreement to see the factors that led to a loan approval haven’t changed.
For example: Making purchases that change your credit picture for the worse – like adding new debt or paying a credit card late, even inadvertently – before you buy the house could lead to a lender rescinding the mortgage approval.
Shop around for the best mortgage. As said before, not every lender offers the same mortgage rate, so shopping around is essential, but something the average person doesn’t do. According to data from the Consumer Financial Protection Bureau, nearly half of people who apply for a mortgage don’t shop around. Failing to do so could be expensive month after month, and really add up after several years.
Consider this example of someone borrowing $200,000 for a mid-price home. At a 4 percent rate of interest, the monthly payment is approximately $955. The same amount borrowed at 4.5 percent increases the monthly mortgage to $1,013, or nearly $700 each year.
As important as it is to obtain the best mortgage rate, it’s also important to watch out for fees charged by mortgage lenders. These fees go by various names, another reason to work closely with a housing counselor throughout the mortgage process in order to navigate the complicated process.
Choose your home carefully. With a strong mortgage approval letter in hand at a great rate, it’s time to find your home. However, a tight market in 2016, especially for first-time buyers, is likely to persist to some degree in 2017. A market with low housing supply requires a buyer to look for diamonds in the rough, and perhaps be willing to accept the not-so-perfect dream home.
That doesn’t mean a buyer should settle for a house that doesn’t meet his or her needs. Keep your list of must-haves front and center, but make sure you know the difference between must-haves and nice-to-haves. A real estate agent that listens to you and clearly puts your interests first is a great partner in the home search process. A crystal clear focus on your must-haves could open up different communities, perhaps with better price points for your budget, and less competition.
Many housing counseling organizations can provide a homebuyer with a starter list of real estate agents from which to choose. However, just like when shopping for a mortgage, shopping for a real estate agent takes time. Remember, this is the person who is going to help you make what is probably the largest financial purchase of your life.
Negotiate, negotiate and negotiate. If real estate is location, location, location, then homebuying is negotiate, negotiate, and negotiate. Unless you’re buying in the most heated and competitive markets, there is always room for negotiation. Here’s where picking the right real estate agent pays off.
Whether it’s the price – probably the most important item to negotiate – or if the seller will pay a portion of closing costs, or provide a home warranty on major appliances, approaching the seller with a list of things you want is something everyone should do. Remember, the seller wants to sell, and you want to buy. Successful home purchases that work for both sides are made in the middle.
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